Memorial Day 2010

Memorial Day has particular resonance for me, being a proud veteran of four years in the U.S. Navy during the Viet Nam War era (although, thankfully, never setting foot in Southeast Asia). For a day of tribute like this one, I try to cite something special on this blog that appropriately ties in to the essence of the holiday. Here is that something special.

The following are a few passages from a speech that General Electric Co. Chairman and CEO Jeffrey Immelt (pictured) delivered at the U.S. Military Academy at West Point on Dec. 9, 2009.

From his intro: "First and foremost, let me tell you how honored I am to be here with you today. I've always been an admirer of West Point, and the character and accomplishments of its graduates. I'm awed by their heroism and self-sacrifice in the wars they've fought and the peace they've kept.

"West Point graduates are responsible for some of the world's greatest engineering feats. They've led some of the most important advances in aviation and medicine and information technology. They've founded colleges and businesses and charities.

"We have 11,000 veterans working at General Electric: 238 West Point graduates, and nearly 600 from all the service academies. We actively recruit from the military because we have learned that the values you bring to our company are essential to our success.

"A recent Gallup poll asked Americans: 'Who do you admire?' It will please you to know that the military finished first, with a 77% approval rating. Conversely, big business and Congress received approval from only 20% of our fellow citizens. People have lost faith in many big institutions. . . ."

And from his closing: "Like all Americans, I read about the sacrifices you and your colleagues have made in Iraq, Afghanistan, and around the world. And I am sure that all of you have friends who have been killed or wounded during the war.

"Their example, and the example of every American who stands in harm's way so that we may be secure in our freedom to build our businesses and follow our dreams and improve our lives, is the voice of our national conscience.

"Few of us will ever do what many of you will do for duty, honor and country. But America doesn't expect heroism from all of us. It does expect us to be good citizens of this country where no one's dreams are too big, a country that is defended so bravely by others. It expects us to honor the sacrifice made on our behalf by making the best use of the freedom you protect. Wherever our talents lie, and whenever our conscience requires, we must all, to the best of our abilities, help keep America the great force for good it has long been. We are trying to do that at GE.

"America is at a turning point. The U.S. military defends our freedom to succeed, and your values will help to direct our renewal. It has been a great privilege to talk with you."

And for me, on this Memorial Day 2010, a great privilege to share Mr. Immelt's remarks.

Take a Chance to . . . Relax

It looks like the Avis rental car company is in a tough fight to win over rival car-rental firm Dollar Thrifty Automotive Group from the clutches of Hertz, as detailed in Friday's Wall Street Journal.

I don't have any comment on that deal, but I do have a comment on the founder of Avis Rent-A-Car, Warren Avis. I published in Directors & Boards an excerpt from his memoir, titled Take a Chance to Be First, that he wrote in 1986.

This being Memorial Day weekend, the passage that appealed to me 20-plus years ago to present to my readers seems particularly fitting for the leisure mode that we should all be in this holiday, and with the summer shortly upon us. Here is an excerpt from the excerpt, a few paragraphs in which Warren Avis shares his "vacation" philosophy:

"Because I'm a very intense person, I need plenty of time off to maintain my staying power year after year. If I didn't pace myself and take good care of my physical and emotional needs, I'd quickly burn out — and I might well run into various health problems.

"I began to understand this principle a number of years ago, during one of my first entrepreneurial ventures as an independent sales representative. My inclination to throw myself body and soul into various sales challenges made it necessary for me to pull back periodically to recoup my energies. So from the very beginning, I always gave myself generous vacations.

"In addition to regular vacations, I also took plenty of time off during the rest of the year as well. So I might put in a 16- or 18-hour day when going full steam with a project. But then I'd always intersperse my hard work with play and relaxation. Money is no good if you have to work so hard for it you don't have time to enjoy it.

"But to live by a 'relaxed' philosophy and maintain an outstanding sales record, it's necessary to get extremely well organized — and work like hell when the time for work has arrived. Specifically, my approach was to really work hard for about three weeks each month, and then take the rest of the month off. But during that three weeks, it was necessary to go at top speed."

Warren Avis died in 2007 at the age of 92 — from natural causes. According to his New York Times obituary he was "fit and active until shortly before his death, even water skiing until the age of 89." While taking the chance to be first in business, as he titled his life story, he took the chance to relax along the way. That sounds like a life well lived. How are you living this Memorial Day weekend?

Deal Trouble

Maybe it is a good thing for the shareholders of Prudential PLC to be rebelling against management's desire to acquire AIG's Asian life insurance unit, as reported in today's Wall Street Journal. The price tag is a big gulp — $35.5 billion on offer.

In the midst of proxy voting season right now, shareholder bile levels are running high about levels of compensation. But getting back to the Prudential deal, it is worth being reminded, as a wise hand once said, "Vastly more money is wasted on bad acquisitions than on overpaid CEOs."

That sensible note comes from Robert Denham, in an article he wrote for Directors & Boards 10 years ago. Denham parachuted into Salomon Inc. with Warren Buffett to help stabilize the investment firm following its 1991 Treasury auction scandal that threatened to destroy the firm. He returned to his partnership at the Munger, Tolles & Olsen law firm in Los Angeles after negotiating the sale of Salomon to Travelers Corp. for almost $10 billion.

I resurfaced some of Denham's wisdom on cautious dealmaking for the latest Boardroom Briefing, a series of special reports Directors & Boards produces four times a year. Click here to access a copy of it.

Another bit of Denham's deal wisdom seems particularly worthy of mention. I don't know that this applies to the Prudential situation, but shareholders of the U.K. insurer (which is not related to the U.S. insurer of the same name) may rightly be fearful that it does:

"The board can play a valuable role in connection with proposed acquisitions. Ego, animal spirits, and badly structured compensation systems all conspire to encourage CEOs to love acquisitions even when shareholders should hate them."

Pru's shareholders seem to hate this AIG deal — at least at the proposed price. The board should take a page out of the Denham playbook and proceed cautiously.

Enron as a Porsche Turbo

"Enron" — the play on Broadway — closes today, running just a week in New York, although it had a longer run in London. I can't imagine how they ever made a play out of the Enron situation, and I guess I won't have the opportunity to find out — unless the show has a second life in the regional theater circuit.

Enron, the company, has been a big part of my life as the editor of a corporate governance journal — citations continually find their way into multiple articles since the energy firm's plunge into ignominious bankruptcy in 2001. Pretty much all one has to do is say the word Enron and you have a shorthand description for abject board leadership.

One author who did a particularly scathing examination of Enron's board is Leo Hindery. This was for his 2005 book, It Takes a CEO. Hindery is managing partner of InterMedia Partners LP, a private equity firm. He has a long and successful track record running companies in the communications field, such as AT&T Broadband. I had the pleasure of running an excerpt from his book in Directors & Boards.

As the final curtain comes down on "Enron," the play, here is a choice passage on Enron, the board, from Hindery's book:

"[The] directors could and should have done a whole lot better. Becoming a member of the board of a company like Enron, circa 1999, was a little like getting into the passenger seat of a Porsche Turbo: you know it goes fast. Knowing that, you keep an eye on the driver. If the driver starts taking the turns too fast, you tap him on the shoulder and make him slow down. If you don't, and the cops later pull you over, don't say you didn't see the scenery whizzing by. You did."

What an entertaining observation, no? It makes me wonder that if the play was as entertaining, perhaps it might have had a longer run. Maybe the producers should have called in Hindery as a script doctor.

A First

Before the Second Quarter edition of Directors & Boards rolls off the presses tomorrow, let me note a first in our 35-year publishing history — Bob Monks is the first person to appear twice on the cover of the journal.

Granted, we did not start picturing lead authors on our covers until 1996, some 20 years after the publication's founding. Yet, that makes his dual appearance all the more worthy of recognition.

Bob joined a melange of authors pictured on the cover of the Governance Year in Review special edition published in the spring of 2009, and then again some nine months later in the First Quarter 2010 edition, also in a photo montage of debaters on "The Great Divide" — our panel discussion on whether to separate the chairman and CEO positions. (Accompanying photo is from this debate held at the Weinberg Governance Center at the University of Delaware in November 2009.)

I first published Bob in 1989, a co-authored article with his longtime business partner and collaborator in shareholder activism, Nell Minow. Since then he has written frequently for Directors & Boards and has become a cherished colleague in advancing good governance. He can always be counted on for bringing clear thinking — and, I like to think, right-minded thinking — to the often complex issues of board leadership.

His most recent weigh-on on whether to separate the chairman and CEO roles is a perfect example of the cooly rational mind at work on one of the thorniest issues confronting boards today. It is an issue that he is personally close to — having bumped up against the daunting powers that be at ExxonMobil in presenting a proposal for the energy giant to make the split. He lost in that initiative. But let me share one of his keen comments made at our panel that is worthy of deep consideration as other managements, boards, and shareholders continue to wrestle with this "great divide":

"We are getting to the point now where the size of corporations is a major factor in the political and social life of countries. ExxonMobil, for example, a company that many know I have had a particular involvement with as an activist shareholder, is the 14th largest enterprise — and that includes countries — in the world. What corporations of that size do has a huge impact on society. They have to be concerned not only with meeting their numbers but also meeting their responsibilities to society. This raises very complicated questions for them — questions of global warming, questions of hiring practices in different parts of the world, and many other difficult issues. With the legitimacy of corporations constantly on people's minds, you need leaders who are sensitive to the company's impact on society. That requires a range of skills that is not impossible to find in a single person, but if you can't get that in a single person then that is another reason you may have to separate the roles at the top."

Well said — especially considering the less-then-deft treatment he received from ExxonMobil management in presenting his proposal, this is not a vituperative charge against the company but a statesmanlike projection of a future leadership requirement.

I trust we will have more opportunities to present the wisdom of Bob Monks to the Directors & Boards audience. That might even mean the prospect of a three-peat appearance on the cover.

New BofA Chairman Chad Holliday

It strikes me as a superb decision by the Bank of America board to have Charles "Chad" Holliday Jr., former chairman and CEO of DuPont Co., be the company's new chairman.

Directors & Boards author Jack Roddy visited with Mr. Holliday last year — a meeting that resulted in a Q&A article on Holliday's style of leadership that we published in the Fourth Quarter 2009 edition.

I had come to know Roddy as an avid devotee of leadership. He studies it intently in his role running J.P. Roddy Consultants, through which he specializes in recruiting leadership candidates in the automotive, transportation, plastics, and chemical industries. When he shared with me the transcript of his conversation with Chad Holliday on what makes a good leader, I jumped at the chance to share it in turn with the Directors & Boards audience.

As I reread this now six-month-old article in light of Holliday's new appointment at BofA, I am even more persuaded that the troubled institution and its shareholders are in good hands. Here is one of Holliday's answers to Roddy's question as to the importance of spontaneity as a leadership trait. Keep in mind as you read his answer the fateful decision by BofA to complete the Merrill Lynch acquisition:

"My style has always been to be spontaneous as a way of managing in a meeting or other situation. I find myself constantly asking, 'Am I listening well? What is this person saying that I need to hear?' I believe being comfortable with spontaneity is important for a good leader.

"I remember once we were considering an acquisition and we were far along the way to going forward with a positive decision. Then suddenly someone asked a new question about certain factors. This opened up a whole new way of looking at the acquisition such that we said to ourselves, 'What did we miss that caused us to move this far without seeing another important viewpoint?'

"Ultimately, we decided against the acquisition, which was the right decision, yet we almost missed the boat on that one due to singular-direction thinking. The fact that we were open to new questions helped us to make the right decision."

Singular-direction thinking is a threat to many boards. To the extent that such thinking may have almost sunk BofA, my guess is a change in board culture is coming with Chad Holliday chairing the board meetings.

He Didn't Just Say That, Did He?

Amusing? Or appalling? You be the judge.

Vicky Ward shares this story in her new book, The Devil's Casino (John Wiley & Sons), about the collapse of Lehman Brothers. The tale goes back to the days when Lehman was first being spun out of American Express. Amex's then-chairman Harvey Golub was giving the Amex board a presentation about the benefits of the spinoff of the investment banking firm.

Ward writes: "The presentation — a basic rundown of the businesses within Lehman, and what the economics looked like going forward — went over well, and the board signed off on the deal. Two memorable moments occurred.

"First, when former Secretary of State Henry Kissinger, then on the American Express board, opened a sweetener packet, emptied it into his iced tea, then stirred the beverage with his pencil — eraser end first.

"The second was when another board member, former U.S. President Gerald Ford, asked Golub if he could please explain the difference between 'equity' and 'revenue.' There was an awkward moment of silence as everyone digested this.

"One person in the room recalls that Golub 'did a very skillful job. I was very impressed. It's a very basic concept, and he explained it to the former president without making it sound like he was talking down to him.' "

The Henry the K anecdote is amusing. The Gerald Ford anecdote? Not so amusing.

You read something like that and it sure explains a lot about the ability of these financial institution boards to oversee the complex wheelings and dealings of the firms, including — and most ironically — the abject failure of the Lehman board to prevent the firm's annihilation.